The Year of the Car as a Service Has Arrived

The car is now officially a service. Car sharing company Zipcar (s zip) started trading on the Nasdaq Thursday, after pricing its shares Wednesday significantly higher than expectation, and the company’s stock soared in early morning trading. The company raised $174.3 million in its IPO, over double its original expected $75 million IPO. The so-far bullish move is an indicator that the year of people embracing the car as a service — vs ownership — has arrived.

If you look at the way goods are being used in an increasingly-constrained world, it’s a natural progression. There will be an estimated 9 billion people on the planet in 2050 — more than 2 billion than there are today — and that population growth will largely happen in cities. According to the United Nations, around 70 percent of the world population will live in cities or urban areas by 2050, up from 49 percent today.

Advertisement

If every single person owned a car in these mega cities of the future, it would be unsustainable. Just look at the world’s worst 10-day traffic jam in Beijing last year. It’s already getting unsustainable — i.e., too expensive, not enough parking and too much traffic — to own a car in San Francisco or New York City. I gave up my car a couple of years ago in San Francisco, and I rely on City Car Share (a non-profit competitor to Zipcar), Muni, and bike.

Zipcar provides cars parked around cities in pods, available on demand to users for a subscription fee. It’s an example of a whole new economy being built around using the web and mobile technology to share “stuff” (which we’ll talk about at Green:Net 2011 next week). Cars are just the latest (and one of the most important) pieces of this trend. The network has become a platform for sharing physical objects, as much as it is a platform for software as a service, or computing on demand (cloud computing).

Zipcar’s car sharing service is still an early market to be sure. The company only has around 560,000 members after eleven years in existence. Many of those users are in cities and are college students. But according to Frost & Sullivan, the revenue from car sharing programs in North America will increase to $3.3 billion in 2016, up from $253 million in 2009.

Despite the small(ish) size of the car sharing market, the next generation of car sharing startups have already emerging emerged in recent months focused on building car sharing around personal vehicles (owned by people in your community or neighborhood instead of an entity like Zipcar). Those companies include RelayRides, GetAround, and Spride Share, and if you come to Green:Net 2011 on April 21 in San Francisco, you can hear from RelayRides CEO Shelby Clark, and Spride Share founder Sunil Paul. Think of these new businesses as Zipcar without the large capital overhead.

There’s another reason car sharing is emerging as a smart choice for its users and the planet. At the same time the population grows — and partly because of it — the planet is facing a shift to a new era of constrained resources. Fossil fuels, and thus the traditional way we generate energy, are increasingly not going to work as well in the future due to a number of factors: Burning fossil fuels causes climate change, the imbalanced concentration of fossil fuels creates global political instability, and the idea that the world’s known available petroleum reserves have (or will sometime) peak.

Using cars as a service cuts down on the total number of vehicles on the road, and uses individual cars much more efficiently. The Internet — though its social network capabilities — is uniquely able to break up the ownership of a good into an efficiently managed service revolving around access. Basically you can eke out a lot more use out of a single good when you can finitely manage the time and usage of it within a specific population.

Author Rachel Botsman explained the environmental aspects of so-called collaborative consumption to me in an email last year through the idea of “idling capacity,” or the waste that exists in the stuff we own but rarely use. The car that sits idle twenty-three hours a day or the spare bedroom that is rarely used (hello Airbnb). In the U.S., Botsman says “80 percent of the items people own are used less than once a month,” and collaborative consumption is “the reckoning of how we can take this idling capacity and redistribute it elsewhere.” Botsman colleague Lauren Anderson will be speaking at Green:Net.

The ultimate idea is to have our economy value units of usage over units sold, and then the notions of “eco-efficiency and business efficiency align,” explained Botsman. In that world, sustainable design and longevity of goods become much more important in the production process. Car sharing might represent one of the largest available efficiency gains and Botsman says that “one car share gets approx 7-8 vehicles off the road.”

Zipcar is great. You don’t pay for gas and insurance is included in your membership. You never have to spend money on maintenance or replacing flat tires, either.

I went from spending about $600 in monthly car payments, insurance, and gas to just $100 a month by giving up my car and relying on Zipcar. Even that cost is covered because I’m now renting out my vacant parking space for that sum.

And another benefit. Because Zipcar operates in a lot of big cities, it’s extremely convenient to use when traveling. The fact that I can reserve a car minutes before I need it with the iPhone app makes it incredibly convenient.

Does it really use cars more efficiently? Or do the cars just simply wear out more quickly and need to be replaced more frequently, negating the benefits of a shared car? I may only drive my car for 45 minutes a day, but I keep my cars for years. And how, if five people share a car or drive five individual cars, will the amount of fossil fuel usage decrease if the total mileage driven is identical?

In many cases, manufacturing and disposal represents a sizable proportion of the energy and resource costs of a product’s full life-cycle. You also have the opportunity cost of storing under-utilized assets.
In terms of operational efficiency, a faster refresh cycle increases opportunities to take advantage of more efficient new technologies.
Efficiency of Zipcar is similar to the ROI benefits that companies get when changing to Just-In-Time distribution, by converting a capital investment to an expense.